How (and Why) Republicans Killed the Keystone Pipeline

One of my teaching duties at The University of Texas’ McCombs School of Business is to help oil company executives learn how to develop positive, productive relationships with “external stakeholders” -- governments, NGOs, neighbors, etc. A key lesson in that work is that the company's relationship with elected government officials is particularly fraught with risk. Business people can never fully trust an elected politician, no matter how close an ally he or she seems to be, because when the politician’s electoral interests diverge from shared policy goals, the former almost always trump the latter.

The recent history of the Keystone pipeline is a perfect example of this lesson.

As proposed, the Keystone pipeline would provide added capacity for the transport of oil from the oil sands of Alberta, Canada, to refineries in the United States, including Texas. Because the pipeline crosses an international border, its construction requires the approval of the Department of State.

Environmentalists and most Democrats oppose the pipeline in large part because they oppose the development of the oil sands, which is a particularly pollution- and energy-intensive way to produce oil. Industry, unions and most Republicans, on the other hand, support the pipeline for economic and energy security reasons. On its face, the decision whether to approve the pipeline looks like so many other modern energy policy conflicts, pitting pro-development Republicans against pro-environment Democrats. However, for the Administration the decision pits two of its core constituencies--unions and environmentalists--against one another. Presumably, it is that political conundrum that led President Obama last fall to postpone the decision until after the 2012 presidential election.

At the time of the president’s decision, the pipeline was still undergoing an environmental review, one that had been delayed by opposition to the pipeline in the State of Nebraska. The pipeline was to pass over a sensitive aquifer in state’s Sandhills region. The Republican governor of Nebraska and the state's Republican-dominated legislature opposed the route for that reason. Last November, the State and the pipeline’s sponsor, TransCanada Corporation, agreed upon a new route around the sensitive aquifer. That new route has yet to undergo any formal environmental review.

However, Republicans in Congress saw the postponement of the decision as a political opportunity. Last December, they inserted a provision requiring the President to make a decision about the pipeline within 60 days into an unrelated piece of legislation. Facing this deadline, the President rejected the pipeline, arguing that the deadline did not give the Administration sufficient time to conduct the necessary environmental, safety and other reviews. Given recent high-profile pipeline leaks in the news, his argument may resonate with most voters.

For project supporters, the unsuccessful conclusion of the permitting process represents a significant setback, one that needn't have come to pass. Had Congress not forced the administration's hand, the review process would have continued through 2012, building on the work done to date while addressing the issues raised by the new route in Nebraska. Instead, any new attempt to secure approval for the pipeline must start over at the beginning.

And so, politics trumps policy again. It’s not that Republicans would prefer to kill the pipeline; to the contrary, they would prefer that a Republican president approve it in 2013. The problem, from TransCanada’s point of view, is that we don’t know now who will win in November. By fast-tracking the approval process, Republicans may score political points, but they have also handed a victory to the project’s opponents, whose environmental case against the pipeline (as distinguished from oil sands production) was always a fairly weak one.

Disclaimer

The views expressed are those of the author and not necessarily The University of Texas at Austin.

Comments

Inaccurate Information on Pipeline. It just seems to me that no one is giving the accurate information on the pipeline debate. The president did not initiate the resistance to the pipeline. It started in Nebraska. It's my understanding that part of the pipeline is already complete, and it's Nebraska that is questioning if they want it routed through a particular part of their state. Like the article said look to the Governor and state government. Also, most of the oil is not for U.S. use. Its for export. There are also other pipelines that can be expanded without permit. Plus, the over-stated job numbers. The opposition is not to the Keystone but to a rush job. More and more it doesn't look like the President is the one playing politics. Even I thought he should compromise on it, until I researched all the facts. If they really want it, why can't they attach it to a portion of the American Jobs Act?

Re: Republicans in Nebraska. When it's a NIMBY issue, bipartisanship rules. Interesting.
I have a question that has not been addressed in any discussions of the Keystone pipeline project that I have read. Why must the pipeline terminate in Houston/Port Arthur? If, as many claim, the Athabascan oil will reduce the costs and increase the security of our fuel supply, it will have to be delivered to the US market, will it not? Otherwise, it will enter the global market from which we buy it back for ~$100 /bbl crude. But Houston/Port Arthur are ports for petroleum products as well as refinery locations. Do we know for certain that oil from the pipeline is destined for domestic markets? How could I find out?

"It’s not that Republicans would prefer to kill the pipeline; to the contrary, they would prefer that a Republican president approve it in 2013."
I love this. I would extend it: "it's not that Republicans would prefer to drive up the deficit; to the contrary, they would prefer that a Republican president drive it down in 2013". All of our fiscal problems explained by one little sentence. Too bad we can't solve them all with one little solution.

David,
Your argument is interesting and provocative. I completely agree that the Republicans were forcing President Obama's hand. As you pointed out in your article, politics trumps business everyday. The question I have for you is if it is OK for President Obama to delay his decision until after the election for political reasons, why is it not OK for the Republicans to force his hand before the election for the same reasons? Why place the "blame" at their feet if they were doing something no more political than the President?
Bottom line, the President was forced to choose between his constituencies and that is likely a good political ploy. The unions now know where his true allegiance lie.
One other point, your assurance that the president was likely to approve the pipeline after the election seems presumptious. His decision would always be a political one. As a result, the conditions at the time would dictate whether he approved it or not. If he needed to appease his environmental constituency, he would be just as likely to shut it down again.
That is the problem when you govern from polls and not convictions.
Thanks,
Kevin

To blame this decision on Republican is not only wrong, but unnecessarily provocative, bordering on inflammatory. How can you blame Republicans because they tried to accelerate the glacial decision process?
A few facts: this pipeline has been "under review" years longer than the typical pipeline project. There is already thousands of feet of pipeline running through the supposedly "sensitive" areas that are being used as the excuse for stopping the construction.
It is environmentalists (mostly on the left) as well as this incompetent administration that is squarely to blame for this entire debacle. I can only hope that they face the blinding political heat that they deserve as we see oil prices continuing to rise with offshore, federal lands, ANWR, etc. continuing to be off limits and/or painfully delayed by this incompetent administration.
It would be nice to see some balance and context when you level outrageous accusations.